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Black Gold In The Canadian Oil Patch

April 30, 2013

Drama. The Canadian Oil Patch is in the doldrums and, whether it likes it or not, wants it or not, is saving the best for last, possibly into the next decade while world supply and demand works itself out. The “long view” would buy the low priced “big oil” companies as they emerge, collect dividends, and wait, and wait, and wait, for as long as it takes; it’s not an inspired strategy but eventually makes billionaires of merely patient multi-millionaires.

Two of the bigger producers, Nexen Incorporated ($15 billion) and Progress Energy Resources ($6 billion) have already been taken out at premium prices, and Talisman Energy has sold (for $1.5 billion) its North Sea interests and obligations to Sinopec (please see our Posts, The All Canadian Four Play and The Canadian Oil Patch, October 2012).

Only seven of the current “big oil” producers with a market value in excess of $2 billion are in the Perpetual Bond™ and they have returned +5% plus dividends since December whereas all of them together (the Companies Line in Exhibit 2) have returned nothing (plus dividends) and the S&P TSX Composite Index is down minus (4%) for the year-to-date (please see Exhibit 1 and 2 below).

Exhibit 1: The Canadian Oil Patch – Portfolio Summary – April 2013

The Canadian Oil Patch Perpetual Bond - Portfolio - April 2013

The Canadian Oil Patch Perpetual Bond – Portfolio – April 2013

(Please Click on the Chart to make it larger, and again, if required.)

Exhibit 2: The Canadian Oil Patch – Cash Flow Summary – April 2013

The Canadian Oil Patch Perpetual Bond - Cash Flow - April 2013

The Canadian Oil Patch Perpetual Bond – Cash Flow – April 2013

(Please Click on the Chart to make it larger if required.)

All of the seven companies that are currently in the Perpetual Bond™ have had positive returns since December and all of them pay dividends as well – we’re glad when it works out, but then we check our stop/losses and possible “collars” to make sure that we also keep our profits for the long term (please see Exhibit 1 above) – and based on what several of them do, it’s possible that speculation on the outcome of the Keystone XL Pipeline is bolstering their prices, but it’s not clear how that will work out (April 29, 2013, Hughes County, Oklahoma, Two Arrested At Keystone XL Pipeline Work Site In Oklahoma).

On the other hand, the Tourmaline Oil Corporation has a current market value of $7 billion and is up +19% so far this year and is finding, producing, and selling new Canadian oil and gas (Marketwire, February 12, 2013, Tourmaline Grows Year-End Reserves and Reserve Value by Over 60%) and is just re-entering the Perpetual Bond™ at prices above $40 (please see Exhibit 3 below).

Exhibit 3: (B)(N) Tourmaline Oil Corporation – Risk Price Chart

(B)(N) TOU Tourmaline Oil Corporation - April 2013

(B)(N) TOU Tourmaline Oil Corporation – April 2013

Tourmaline Oil Corporation is engaged in the acquisition, exploration, development and production of petroleum and natural gas properties.

(Please Click on the Chart to make it larger if required.)

Most of the other big oil companies have taken price hits so far this year, and they’re still for sale. The price is $226 billion (please see Exhibit 4 below) and the Energy Minister (Mr. Oliver, quoted in Reuters, October 7, 2012) anticipates that we will need about $650 billion of new investment over the next ten years in order to further develop the current projects to maturity, which, of course, includes the tar sands and synthetics, as well as conventional oil & gas development if not new exploration.

Exhibit 4: The Canadian Oil Patch – Still For Sale – April 2013

The Canadian Oil Patch - Still For Sale - April 2013

The Canadian Oil Patch – Still For Sale – April 2013

(Please Click on the Chart to make it larger if required.)

Many of these companies are already substantially “foreign owned”; we also estimate a downside of minus (11%) in the next quarter due to the demonstrated price volatility, which begins to put them into the range of almost anybody’s budget. Please see the $Stop/Loss column in Exhibit 4 above.

Moreover, companies such as Suncor Energy have been turning in excellent reports, but still the price isn’t moving, standing and rising, as (alleged) “investors” respond by taking profits rather than keeping them for the future – the price is up +5% today on twice the usual volume (Reuters, April 29, 2013, Canada’s Suncor Energy Q1 operating profit beats expectations). But why is it even down (11%) since December? Suncor was producing and taking care of business all of last year. Please see Exhibit 5 below.

Exhibit 5: (B)(N) SU Suncor Energy Incorporated – Risk Price Chart

(B)(N) SU Suncor Energy Incorporated - April 2013

(B)(N) SU Suncor Energy Incorporated – April 2013

Suncor Energy Incorporated produces refinery feedstock, diesel fuel and by-products by developing its resource leases in the Athabasca oil sands in northeastern Alberta and upgrading the bitumen extracted at its plant near Fort McMurray, Alberta.

(Please Click on the Chart to make it larger if required.)

Postscript

We are The RiskWerk Company and care not a jot for mutual funds, hedge funds, “alternative investments”, the “risk/reward equation” and every other unprovable artifact of investment lore. We have just one product

The Perpetual Bond™
“Alpha-smart with 100% Capital Safety and 100% Liquidity”
Guaranteed
With No Fees and No Loads on Capital

For more information on RiskWerk, please follow the Tags or Categories attached to this Letter or simply enter Search for additional references to any term that we have used. Related data may be obtained from us for free in a machine readable format by request to RiskWerk@gmail.com.

Disclaimer

Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are, now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”) . The Canada Pension Bond®™ and The Medina Bond®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.

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